Private Company D&O

Directors and officers (D&O) insurance is a type of liability insurance that provides coverage for the personal assets of directors and officers of a company in the event that they are sued for wrongful acts in the performance of their duties. While public companies have long recognized the importance of D&O insurance, private companies have often overlooked this critical coverage. However, private company D&O insurance is becoming increasingly important as lawsuits against private company directors and officers continue to rise.

Private companies face many of the same risks as public companies, including lawsuits from shareholders, regulators, and other stakeholders. However, private companies often have fewer resources to defend themselves against these lawsuits, making D&O insurance even more critical. D&O insurance can provide several key benefits for private company directors and officers, including:

1.????Protection for personal assets: In the event of a lawsuit, directors and officers may be personally liable for damages. D&O insurance can help protect personal assets such as homes, savings, and investments from being seized in the event of a lawsuit.

2.????Peace of mind: Knowing that they are protected by D&O insurance can help directors and officers feel more secure in their roles and make decisions without fear of personal financial ruin.

3.????Attraction and retention of talent: Offering D&O insurance as part of a benefits package can help attract and retain talented directors and officers. This can be especially important for private companies that may not be able to offer the same level of compensation as public companies.

4.????Enhanced corporate governance: D&O insurance can help promote good corporate governance by encouraging directors and officers to act in the best interests of the company and its stakeholders.

In addition to these benefits, private company D&O insurance can also provide coverage for defense costs, settlements, and judgments resulting from lawsuits against directors and officers. It is important to note, however, that D&O insurance policies can vary widely in terms of coverage and exclusions, so it is important for private companies to work closely with their insurance broker to ensure that they have the right coverage for their needs.

In summary, private company D&O insurance is becoming increasingly important as lawsuits against private company directors and officers continue to rise.

• According to a 2021 survey by the National Association of Corporate Directors (NACD), 47% of private company directors and officers are concerned about D&O liability, up from 36% in 2019. The survey also found that 38% of private company directors and officers believe that their D&O insurance coverage is inadequate.
• A 2021 report by the law firm Norton Rose Fulbright found that securities class action lawsuits against private companies in the US increased by 80% in 2020 compared to the previous year. The report also found that the average settlement amount for these lawsuits was $25.7 million.
• A 2021 report by Cornerstone Research found that the number of securities class action lawsuits against private companies in the US has been increasing over the past few years. In 2020, there were 64 such lawsuits, up from 38 in 2017.
• A 2020 report by the accounting firm PwC found that private company directors and officers are facing increasing scrutiny from stakeholders, including investors, customers, and employees. The report found that 39% of private company directors and officers have experienced a lawsuit, investigation, or regulatory inquiry in the past three years.
• A 2021 report by the law firm Skadden, Arps, Slate, Meagher & Flom found that private company directors and officers are increasingly facing lawsuits related to environmental, social, and governance (ESG) issues. The report found that ESG-related lawsuits against private companies increased by 82% in 2020 compared to the previous year.